* Global stocks rally as Home Depot, Target surprise
* Crude oil firms above $68 ahead of inventory data
* Euro lifted by ZEW data but retreats from day's high
* Gold firms as dollar declines, oil prices recover (Updates with U.S. markets, changes byline, dateline; previous LONDON)
By Herbert Lash
NEW YORK, Aug 18 (Reuters) - Global stocks rallied on Tuesday, rebounding from the previous day's sharp fall, and oil prices rose above $68 a barrel ahead of key U.S. inventory data as crude markets tracked stock market gains.
The euro rose, recovering from multi-week lows against the dollar and yen, after an unexpected rise in German investor sentiment boosted optimism about the euro zone economy. For more see: [ID:nN18441586].
But government debt prices were little changed as data showed a surprise fall in U.S. housing starts and a steeper than forecast fall in wholesale inflation, which tempered the strength in equity markets. [ID:nN18410346]
Investors also took a breather from a recent government debt rally. A rally in euro zone government bonds came to a halt, with Bund futures snapping a six-session rally and retreating from a one-month peak.
Better-than-expected corporate results from U.S. retailers
Home Depot Inc
"The market is still very uncertain whether it should be going for the story of a V-shaped recovery or a W-shaped recovery. It's a very split market," said Niels From, chief analyst at Nordea in Copenhagen.
U.S. housing starts and permits for new homes unexpectedly slipped in July, while the inventory of total houses under construction fell to a record low, a government report showed.
However, some analysts said that fewer new houses may allow the market to absorb inventory and support prices, leading homebuilders higher. [ID:nN17348766] The Dow Jones home construction <.DJUSHB> index rose 2.3 percent.
"We are seeing some tentative signs of improvement in the market this morning, following yesterday's losses around the world," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
The Dow Jones industrial average <.DJI> was up 84.64 points, or 0.47 percent, at 9,219.88. The Standard & Poor's 500 Index <.SPX> was up 10.06 points, or 1.02 percent, at 989.79. The Nasdaq Composite Index <.IXIC> was up 24.17 points, or 1.25 percent, at 1,955.02.
European equities ended higher after hitting a two-week low
on Monday, with stronger crude oil prices supporting energy
shares and Swedbank
The FTSEurofirst 300 <.FTEU3> index of top European shares came under some pressure on the U.S. housing data, but moved back up to close 1.4 percent higher at 934.56.
"Since the big part of the results season is over, the market will focus on the macroeconomic side," said Dang Chicuong, an equity analyst at Richelieu Finance in Paris.
Oil investors turned their focus to inventory data.
The release of weekly data from the American Petroleum Institute at 2030 GMT will be followed by U.S. government figures from the Energy Information Agency on Wednesday, with analysts expecting more signs of weak U.S. demand.
U.S. crude for September delivery
Gold
The interbank cost of borrowing dollar
Central bankers at an annual meeting convened by the Federal Reserve in Jackson Hole, Wyoming later this week are expected to discuss how to gradually mop up liquidity that has helped money markets stabilize two years into the crisis.
The extra cash has driven short-term borrowing costs to their lowest levels ever and brought some key gauges of stress in short-term lending markets to pre-crisis levels.
Japan's Nikkei share average <.N225> rose 0.2 percent on some late session buying of technology shares, while the MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> gained 0.3 percent. (Reporting by Edward Krudy, Steven C. Johnson and Chris Reese in New York and Atul Prakash, Emelia Sithole-Matarise, Joe Brock, Ian Chua and Jan Harvey in London; Writing by Herbert Lash; Editing by James Dalgleish)